Posted March 17, 2010
Monday trading saw the US dollar rise. Information from Moody’s and investors holding back until Tuesday’s Fed meeting seemed to drop the euro’s value.
In Monday trading on the currency markets, the US dollar saw a lift in value. Investors were still cautious as they wait for the Federal Reserve’s meeting which will provide an answer on whether key interest rates will rise. Further news shows that the US and the UK could see a downgrading of their top AAA credit rating from Moody’s.
The credit rating warning led to a pullback from the riskier assets, which includes stocks and emerging market currencies. Investors took to safer ground in the dollar itself. By late Monday New York trading, the 16 nation euro saw a value drop from $1.3757 to $1.3672 (from Friday to Monday trading). The drop occurred even as investors seem less concerned about the risks in Greek debt.
That Greek debt was the topic of conversation, though. Greece stated on Friday that it exceeded its deficit cutting targets in the months of January and February. On Monday, finance ministers from countries that use the euro were trying to determine if they should guarantee the Greek debts.
During Monday trading, the British pound moved to $1.5048 to $1.5179.
The US dollar moved to 90.49 Japanese yen, down from 90.51 yen. The dollar also rose against currencies from Latin American, Asia, New Zealand, Australia and Canada, the so called emerging market currencies.
The credit rating agency, Moody’s Investor Services, also played a heavy hand in the movement of currencies on Monday during trading. The agency released information that the UK and the US do not face an immediate threat to the AAA ratings they have in place simply because they are still able to service their debts. However, the agency did state that the rise of interest rates could make it more difficult and expensive for the countries to do that.
Currency investors were cautious going into trading on Monday as they wait for the Federal Reserve to make decisions on whether or not to raise the key lending interest rate. However, the Fed is expected to keep this benchmark rate unchanged at the meeting, keeping it in the same range of near zero. This is a record low for the rate. The Fed is expected to meet tomorrow, Tuesday, to make this decision.
Currency traders are likely to see some fluctuations that generally occur after the Fed makes its statement, following their meeting. Traders are likely to use the information provided as an indication of what is occurring with the economy, too. If the Fed announces a hike to interest rates, this could help stop inflation and slow economic activity. It also tends to lead to a boost in the value of the country’s currency. This occurs because investors are looking for higher yields.
In addition to the above information, US debt also played a role in the currency movements on Monday. Foreign holdings of US government debt increased by $17 billion in January, a report indicated. It moved to $3.71 trillion, the US Treasury indicated.
Other information out Tuesday that could affect the currency markets is the US government’s housing construction and building permit information.